Buy Firstsource Solutions; target of Rs 90: Emkay Global Financial

Emkay Global Financial's report on Firstsource Solutions

Revenue grew 11.8% QoQ to Rs11.9bn (up 12.2% QoQ/13.1% YoY in CC), led by strong momentum in mortgage and recovery in the top account. EBITM expanded 40bps QoQ to 11.4% on the back of acceleration in revenue, offshore shift and operating efficiencies. BFS grew 13.4% QoQ on continued traction in the mortgage business (up ~2.1x YoY). Healthcare was muted (1.4% QoQ) as it experienced volume compression with delayed elective treatments and declining hospital visits and claims volume. CMT recovered sharply in Q2 due to a solid volume recovery at the top client. FSOL upped its FY21 revenue growth guidance to 9-12% YoY CC (earlier 6- 10%) and retained EBITM guidance of 11-11.5%. Revenue guidance implies a 1.7-5.2% CQGR in H2. Management attributed the wide guidance range to uncertainties over the health crisis.

Outlook

Anticipated increase in revenue growth, delivery on guidance and strong cash generation would support high valuations. We assume coverage on FSOL with Buy and a TP of Rs90 at 12x Sept’22E earnings.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More